Two is a pattern and three or more is a trend, as the adage goes, so what gives ?

Although I never explicitly ruled it out, I’ve never seriously considered investing in a consulting firm or even an IT systems integrator/SSII for that matter. Service businesses are generally difficult to scale, and thus render outsized VC-style returns challenging.

But when an industry is undergoing disruption, it’s my responsibility to take note.

Probably several factors are at play here, though I suspect that one of the most catalyzing on the buyers’ side is the escalating migration of software to the cloud.

Over the past two decades, the largest contributor to the profit margins of the Big 6 / 4 along with Accenture, EDS, CSC has been their activity in large-scale systems integration projects. Deploying systems like Siebel/PeopleSoft/Oracle/SAP in a Fortune 500 firm represented a heavy-duty engagement, involving armies of consultants, be they for requirements definition, process reegineering, development, training, change management, etc.

SaaS solutions like SalesForce are agile enough to start a beachhead at the individual department level and subsequently develop enterprise-wide traction from there, circumventing the need for CIO-sponsored integration engagements.

If anything, this trend should accelerate, with BYOD and the consumerization of the enterprise rapidly gaining adoption.

On the side of the sellers, the traditional A-list of strategy consulting firms has lost some of their shine.

The 2008 financial crisis hit many of these firms hard too, first those with direct client exposure to the financial sector, followed by the general recession which prompted a cost-slashing mentality across all firms.

Moreover, the boom years for these firms involved the recruitment of a lot of smart graduates from top universities. As these recruits gained experience and progressed upward, the management ranks of these firms swelled to a point where there weren’t enough partner positions to accommodate these talented individuals, leading to an exodus of the ambitious ones who, armed with their skills and frameworks, created their own consulting firms.

Other service industries are susceptible to disruption too, such as lawyers, bankers, and yes, even VCs.